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Unemployment: U.S. Economy Added 431k Jobs In May, But Vast Majority Came From Census Hires

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WASHINGTON — A swell in temporary government hiring for the census drove almost all the job market's gains last month – a huge disappointment to Wall Street and a sign that private employers aren't yet confident enough in the recovery to start adding workers with gusto.

Daunted by the European debt crisis and a falling U.S. stock market at home, American businesses added just 41,000 jobs in May, the fewest since January. The government hired 10 times as many for the national census, but those positions will begin to disappear as summer arrives.

At least on paper, the 431,000 total new jobs was the biggest gain in a decade. The unemployment rate dipped to 9.7 percent from 9.9 percent, mainly because hundreds of thousands of people gave up searching for work and were no longer counted.

"On the surface, they look great," Joel Naroff, president of Naroff Economic Advisors, said of the numbers. "But that beauty was only skin-deep. The private sector is not out there hiring like crazy."

Wall Street interpreted the numbers as a big letdown, a sign that the recovery, if not derailed, is at least stalling. The Dow Jones industrial average sank from the opening bell and tumbled 323.31 points, its third worst slide of the year. The index closed below 10,000 for the second time in two weeks. All the major indexes were down more than 3 percent.

The new employment snapshot, released Friday by the Labor Department, indicated that many private employers are still wary of bulking up their work forces. And it suggested the economic recovery may not bring help fast enough for millions of Americans still unemployed.

The slowdown isn't unusual for an economic recovery. Hiring can slow in one month, then accelerate the next, as was the case after the 2001 recession. But that recession was relatively brief and mild. The Great Recession wiped out so many jobs that it will take unusually strong hiring to bring substantial relief. And neither the Federal Reserve nor the Obama administration expects that to happen soon.

Nor are Americans spending as lavishly as they typically do when recessions end. Wages are barely increasing. And the stock market has taken a beating. If shoppers stay frugal, businesses could become even less confident about adding new workers.

The European debt crisis hurts, too.

"We had all this bad news coming out of Europe, which made employers more cautious," said Tig Gilliam, CEO of Adecco Group North America, an employment services company.

The government hired 411,000 workers in May for the census. But last month was the peak of hiring for the 10-year count, and it will begin to tail off in June. The loss of those temporary jobs could help keep the unemployment rate high.

The nation has produced jobs for five straight months. That's a sharp improvement from last year, when employers were slashing work forces to survive the recession. Yet at the current pace of job creation, it could take at least until the middle of the decade to recoup the 7.4 million jobs lost since December 2007 and reduce unemployment to a more normal 6 percent or below.

Economists think the rate will remain above 9 percent through November, potentially leaving both Democratic and Republican incumbents in Congress more vulnerable to defeat. The weak job market also puts pressure on senators to pass an extension of unemployment benefits.

Unemployment is expected to remain high – in the 7 percent range – all the way into 2012, when President Barack Obama would seek re-election. On Friday, the president stressed the recovery was still in its early stages.

"Things never go completely in a smooth line," he said. Obama urged patience, said his policies are working and said the economy is "moving in the right direction" because it is producing jobs again.

Americans aren't so sure. Only one in five considers the economy in good condition, according to an Associated Press-GfK Poll conducted in mid-May.

House Republican leader John Boehner of Ohio seized on the jobs report as evidence that the president's $787 billion stimulus package isn't working.

"It is disappointing that nearly all of (the job) gains are temporary, taxpayer-funded government jobs through the U.S. Census," he said.

The number of net jobs created each month is calculated from a government survey of companies. The unemployment rate, which has not fallen far from its quarter-century high of 10.1 percent in October, is derived from a separate survey of households.

Some analysts think the rate could peak in June at 10.4 percent. About 125,000 new jobs are needed each month just to keep up with population growth and prevent the rate from rising.

All told, 15 million people were unemployed in May. Counting those who have given up looking for work and part-timers who would rather be working full-time, the "underemployment" rate fell slightly in May to 16.6 percent. That meant fewer people were forced to work part time, even though they wanted full-time jobs.

The number of people out of work six months or longer reached a record high in May, 6.76 million.

One of them is James Phelps, laid off a year ago from his job as a sales executive at the computer hardware company Seagate Technology in Minneapolis.

"First, I thought they'd probably hire me back," said Phelps, 64. "Maybe everyone thinks that."

The offer never came. And he found the job market frozen last summer when he starting casting around for executive-level positions.

The hiring picture for new college graduates has brightened somewhat. Employers plan to hire 5 percent more this year than a year ago, according to the National Association of Colleges and Employers. The group's annual survey found that about 24 percent of 2010 graduates who applied for jobs had landed one, compared with about 20 percent a year ago.

But in a sign of how tough things remain, not even half the students with the most sought-after major for employers – accounting – had jobs waiting after graduation, the group found.

Employers across a range of industries last month added jobs at a slower pace, or cut them. Factories, professional and business services, leisure and hospitality companies, and education and health care firms all slowed hiring.

Financial services, construction companies and retailers all pared jobs. The federal government led the way in hiring last month, but only 1,000 of the 412,000 positions were not census-related. State and local governments cut jobs and are expected to keep doing so as they wrestle with budget crises.

With auto sales rising, Chrysler LLC and Ford Motor Co. announced plans last month to hire. But others are still laying off workers. Hewlett-Packard Co. said this week it is cutting 9,000 jobs in its technology services division, and chocolate-maker Hershey Co. may cut 600 jobs.

Wages did rise modestly last month. Average hourly earnings increased to $22.57, from $22.50 in April.

But inflation was eroding paychecks. A Gallup poll, which surveyed shoppers for the week ended May 23, showed consumer confidence has started to deteriorate, mostly likely reflecting declining stock prices.

Still, most economists think shoppers will spend enough to keep the recovery intact. "Consumers will be ringing up enough sales to prevent employers from suddenly clamming up," said Ken Mayland, president of ClearView Economics.

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Associated Press Writers Anne D'Innocenzio in New York, Christopher Leonard in St. Louis and Eric Gorski in Denver contributed to this report.

(This version corrects to third worst slide of the year in 5th paragraph.)

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